Labour Market

New IEA research warns against “penalising” the self-employed


NEW IEA RESEARCH WARNS AGAINST “PENALISING” THE SELF-EMPLOYED  

The self-employed have been particularly hard-hit during the Coronavirus. There are longstanding arguments for realigning the borders between employees and the self-employed, but they need to be thought through, says new briefing paper 

– The self-employed have undoubtedly lost out during this pandemic – yet the Chancellor has hinted they may be taxed more in the future in return for assistance provided across 2020;

– The tax authorities have long held concern that the self-employed do not pay enough income tax and, particularly, national insurance contributions;

– Meanwhile, others have pushed for welfare benefits and employment rights to the self-employed;

– This has triggered a pincer movement: greater entitlements at the cost of paying more to the Exchequer and tighter regulation;

– Given the importance of getting people back to work post-Covid, it would be unwise to penalise the self-employed unnecessarily or deter others from entering into self-employment;

– Changes to their status could take place in the context of “long-overdue” merger between national insurance and income tax;

– Indeed, the end of the pandemic could be the right moment for radical reform.

A new briefing paper from free-market think tank the Institute of Economic Affairs, authored by IEA Editorial and Research Fellow Professor Len Shackleton, asks: Being your own boss – should the Government care?

Millions of UK citizens work on their own account, rather than for an employer. Motives differ, but tend to be a mix of independence, lifestyle, or financial reward. Some view the self-employed as the vanguard of an entrepreneurial and innovative economy; others perceive self-employment as a tax dodge. And some worry that many of the self-employed are victims, pointing to poorly paid and insecure work.

Regardless, Professor Shackleton argues, it is an important form of employment that contributed disproportionately to the growth in total employment in the decade following the last recession. But self-employed workers have lost out badly over the course of the pandemic. Their numbers have thus far fallen more sharply than the number of employees, and there is evidence that government assistance has been poorly targeted, with over half of the self-employed receiving no help.

Yet the Chancellor has hinted that, in return for the assistance the government has granted, the self-employed may be taxed more heavily in the future. Last week, the government also launched a consultation on alleged VAT losses in the ‘sharing economy,’ which encompasses some newer forms of self-employment.

As trade unions and others argue for welfare benefits and employment rights, we are witnessing a “pincer movement” on the self-employed, the author says, with greater entitlements but at the cost of paying more to the Exchequer and tighter regulation.

The self-employed are an extremely heterogeneous group. The danger is that new ‘one size fits all’ legislation will have unintended consequences such as deterring many people from entering self-employment who would gain from doing so, and driving more activities into the informal economy.

There are no very strong public policy grounds for subsidising self-employed status, but there are no grounds for deterring it either. In the current climate, given the importance of getting people back into work, it could be “unwise to penalise the self-employed unnecessarily”.

Changes to the status of self-employed workers could take place in the context of a long-overdue merger between national insurance and income tax. The end of the pandemic, and the huge changes it will make to the economy, may be a timely moment to consider such radical reform.

Professor Len Shackleton, Editorial and Research Fellow at the Institute of Economic Affairs and author of Being your own boss: Should the government care?, said:

Self-employment is for many a risky and often lonely business. Those undertaking it should not be singled out for higher taxes as a payback for government help during the pandemic – particularly as this help was badly targeted and failed to reach the majority of those working for themselves. The self-employed are a hugely varied group with many different motives and circumstances. As the economy recovers, we should not discourage those who want to be their own boss with hasty changes to the tax and national insurance system which fail to take account of this diversity.”

ENDS

Notes to Editors

For media enquiries please contact Annabel Denham, Director of Communications, 07540770774

Professor Len Shackleton is available for further comment.

Being your own boss: Should the government care? is under embargo until 00.01 Tuesday 15th December. An embargoed copy of the report can be found here: https://iea.org.uk/wp-content/uploads/2020/12/Being-Your-Own-Boss.pdf

For further IEA reading on the labour market:

How to create new jobs

The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems. The IEA is a registered educational charity and independent of all political parties.


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